Circuit City rebuts downgrade: A retail credit-rating service pulls its advice that vendors sell to firm

Oct 09, 2008 (Richmond Times-Dispatch - McClatchy-Tribune Information Services via COMTEX) -- CC | Quote | Chart | News | PowerRating -- Circuit City Stores Inc. said yesterday that it has a good relationship with vendors and that it shouldn't be affected by a downgrade from a retail credit-rating service.

Bernard Sands LLC pulled its recommendation for vendors to sell to Circuit City after the Henrico County-based consumer electronics retailer last week reported $239 million in losses for the fiscal second quarter.

The retailer had $92.5 million in cash or cash equivalents, down from $424.4 million at the same time last year.

The recommendation was pulled because of concerns that the retailer might not be able to pay vendors.

The company's problems are "all outlined in [their second quarter earnings] release," said Bob Carbonell, executive vice president and chief credit officer for Bernard Sands. "We're a credit reporting agency. We just report facts."

If vendors follow Bernard Sands' advice, Circuit City's ability to get products into stores could be affected.

Spokesman Bill Cimino wrote in an e-mail yesterday that vendors understand the position Circuit City is in.

"We are in regular contact with our vendors and this action has not caused any issues with getting product for the holidays," Cimino wrote, adding later that the same will hold true after the holidays.

One of the reasons vendors supply Circuit City, he wrote, is because of its size.

Circuit City is the No. 2 electronics retailer in the country, behind Best Buy Co. Inc.

"In many cases we are one of their top partners, [and] that offers them an excellent national channel of distribution -- particularly during the holidays; [vendors] therefore want Circuit City to succeed," Cimino wrote.

Vendor relationships are important for the chain as its cash position has dropped as it works to turn itself around.

Tom Arnold, a professor of finance at the University of Richmond's Robins School of Business, said Circuit City's cash and its ability to have available credit lines will be the key in determining how much time it has to correct itself.

"How Circuit City weathers the coming holiday season with its current cash position will give us a good idea if they can credibly make the turn-around work," he said. "This will not be easy if consumer spending declines significantly."

Shares of Circuit City closed at 41 cents, down 9 cents from yesterday. Contact Louis Llovio at (804) 649-6348 or LLLovio@timesdispatch.com.

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